West Coast Utilities Seminar December 13, 2007

Transcription

1 West Coast Utilities Seminar December 13, 2007

2 Forward Looking Statements This presentation contains forward-looking statements based on current expectations, and neither Pinnacle West Capital Corporation ( Pinnacle West ) nor Arizona Public Service ( APS ) assumes any obligation to update these statements or make any further statements on any of these issues, except as required by applicable law. These forward-looking statements are often identified by words such as estimate, predict, hope, may, believe, anticipate, plan, expect, require, intend, assume and similar words. Because actual results may differ materially from expectations, we caution readers not to place undue reliance on these statements. A number of factors could cause future results to differ materially from historical results, or from results or outcomes currently expected or sought by Pinnacle West or APS. In addition to the Risk Factors described in Item 1A of the Pinnacle West/APS Form 10-K for the year ended December 31, 2006, these factors include, but are not limited to: state and federal regulatory and legislative decisions and actions, particularly those affecting our rates and our recovery of fuel and purchased power costs; the ongoing restructuring of the electric industry, including the introduction of retail electric competition in Arizona and decisions impacting wholesale competition; the outcome of regulatory, legislative and judicial proceedings, both current and future, relating to the restructuring and environmental matters (including those relating to climate change); market prices for electricity and natural gas; power plant performance and outages; transmission outages and constraints; weather variations affecting local and regional customer energy usage; customer growth and energy usage; regional economic and market conditions, including the results of litigation and other proceedings resulting from the California energy situation, volatile fuel and purchased power costs and the completion of generation and transmission construction in the region, which could affect customer growth and the cost of power supplies; the cost of debt and equity capital and access to capital markets; current credit ratings remaining in effect for any given period of time; our ability to compete successfully outside traditional regulated markets (including the wholesale market); the performance of our marketing and trading activities due to volatile market liquidity and any deteriorating counterparty credit and the use of derivative contracts in our business (including the interpretation of the subjective and complex accounting rules related to these contracts); changes in accounting principles generally accepted in the United States of America and the interpretation of those principles; the performance of the stock market and the changing interest rate environment, which affect the value of our nuclear decommissioning trust, pension, and other postretirement benefit plan assets, the amount of required contributions to Pinnacle West s pension plan and contributions to APS nuclear decommissioning trust funds, as well as the reported costs of providing pension and other postretirement benefits; technological developments in the electric industry; the strength of the real estate market in SunCor s market areas, which include Arizona, Idaho, New Mexico and Utah; and other uncertainties, all of which are difficult to predict and many of which are beyond the control of Pinnacle West and APS.

3 Strategic Objectives Focus on customer service excellence Maintain solid operating performance Manage costs and business risks Foster positive regulatory relations and achieve constructive outcomes Optimize real estate assets Create long-term shareholder value

4 Regulatory Overview

5 2007 ACC Rate Case Decision Key Components Updated base fuel rate to 2007 levels Improved timely recovery of fuel and purchased power costs Validated APS fuel hedging and procurement programs Reflected APS requested capital structure Implemented environmental improvement surcharge Began addressing who should pay for growth and challenges of regulatory lag

6 Power Supply Adjustor Revisions Effective July 1, 2007 Annual adjustor components Forward-looking estimate of fuel and purchased power costs True up to reconcile prior-year actual and estimated costs 4 mill/kwh annual cap on PSA rate changes Previously 4 mill/kwh lifetime cap

7 PSA Annual Adjustors & Surcharge Mills/kWh Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec annual adjustor (estimate) Surcharge for Palo Verde 2005 deferrals 2007 annual adjustor

8 Who Should Pay for Growth? October 22, 2007 Fees for Service Arizona Corporation Commission regulators are exploring ways to require property owners to pay for services traditionally provided for free, with the costs spread among ratepayers. These include potential fees for new electric and natural gas customers. This freebie was costing ratepayers, Commissioner Mayes said. We are going to require growth to pay for itself. Right now, it is not.

9 APS Proposed Amendments to Line Extension Schedule ACC 2007 rate order required APS to file amendments to eliminate certain allowances for new or expanded service Shift burden of rising distribution infrastructure costs away from current customer base to growth

10 APS Proposed Amendments to Line Extension Schedule APS proposed amendments Allow APS to collect costs related to line extensions on a current basis Pretax costs estimated to be $3,500 - $5,000 per new meter set Account for amounts collected as revenue Grandfather certain line extension agreements ACC Staff recommended order accepts APS proposed amendments, except for accounting treatment Account for amounts collected as contributions in aid of construction

11 APS Proposed Amendments to Line Extension Schedule Key Dates October 24 APS proposed line extension schedule amendments filed November 2 ACC Staff recommended order issued November 16 ACC Staff recommended order updated to address grandfathering November 16 APS exceptions to recommended order filed Future ACC open meeting to consider proposed amendments

12 FERC Rate Case Summary $37 million wholesale rate increase requested for transmission and ancillary services $30 million to be collected through retail rates Proposed formula-based rates with annual adjustment Rate base: $847 million Capital structure: 47% debt, 53% equity Return on equity requested: 11.3%

13 FERC Rate Case Time Line Test year ended December 31, 2006 Request filed July 10, 2007 FERC rates to become effective March 1, 2008 (subject to refund) Retail adjustor implementation

14 Regulatory Initiatives Promote interactive and cooperative regulatory process Respond to ACC request to have growth pay for itself Address resource planning and acquisition needs Expand renewable energy resources Enhance renewables and energy efficiency programs and encourage customer participation Address earnings attrition

15 Market & Operations Update

16 Solid Fundamental Growth Arizona vs U.S. Population Growth Metro Phoenix Single-Family Building Permits 4% 50,000 3% 40,000 2% 1% 30,000 20,000 10,000 0% Arizona U.S

17 Arizona Leads U.S. in Population Growth Annual percent change , U.S. Census Bureau

18 Resources to Serve Market Growth Existing resources New resources Potential inter-regional transmission Integrated resource planning System reliability Cost to customers Environmental impacts Renewables and energy efficiency Risks

19 APS Resource Requirements for Native Load Average Annual Growth 3.5% MW 10,000 Peak Load & Reserves 8,000 6,000 4, Projected Long-term Resources Market Purchases Peaking Shortfall

20 New Gas Resources 96 MW gas peaking asset Yuma CTs Under construction In service summer MW gas purchase power agreement 10-year term beginning June 2010 Summer product, expanding to 6 months as needed

21 Renewable Resource Requirements Arizona Renewable Energy Standard (RES) Sets minimum renewable energy amounts 5% of energy for retail sales by % of energy for retail sales by 2025 Includes distributed energy component 30% of total by 2011

22 Potential Inter-Regional Transmission Expand resources to meet rapid load growth Enhance resource portfolio reliability and economics Nevada Utah Wyoming Increase system import capability California Improve fuel diversity Access renewable wind and clean coal resources TransWest Express Project Existing Lines Upgrades Other Planned Projects Power Plants Substations Arizona New Mexico

23 APS 2 nd in Customer Satisfaction Among Western Electric IOU s J.D. Power Rating APS Residential J.D. Power Rating Commercial APS 2007 J.D. Power Customer Satisfaction Surveys

24 Top-Tier Coal Performance Capacity Factors 2006 Highlights 100% 75% 50% 25% 0% APS 06 YTD Sept 07 Industry Average* Site record coal capacity factors for third straight year Four Corners Set new production record million MWh Capacity factor 87% Cholla Set new production record 4.7+ million MWh Capacity factor 87% * Latest available

25 Nuclear Challenges & Opportunities Capacity Factors 100% Top U.S. power producer past 14 years 75% Unit 1 vibration issue resolved in 2006 Goal to achieve site 50% capacity factor around 90% Executive management 25% changes in early 2007 Randy Edington, chief 0% nuclear officer YTD YTD YTD Sept Sept Sept Performance improvement plan underway Unit 1 Unit 2 Unit 3 Strengthening regulatory Capacity relationships Factor Capacity Factor Loss Due to Vibration Issue

26 SunCor Overview IDAHO Boise UTAH St. George Sedona Prescott Phoenix ARIZONA Santa Fe Albuquerque NEW MEXICO Commercial and residential real estate developer in Western U.S. Total assets $686 million Stockholder s equity $291 million Diverse geographic and business mix 8 master-planned communities 6 major commercial projects 500,000 square feet of mixed-use urban infill As of September 30, 2007

27 SunCor Gross Margin Contribution by Business Line $ Millions Pretax Home Sales Condo Sales Land Sales Commercial Property & Management Sale of Assets* Projected * Includes discontinued operations

28 Financial Overview

29 2007 Earnings Guidance As of October 25, 2007 Consolidated earnings expected to be within reasonable range around $2.90 per share APS earnings approximately $2.70 per share (8.25% ROE) SunCor earnings approximately $20 million Major EPS differences from July 2007 guidance Hotter than normal Q weather $ 0.14 Tax benefits related to prior years resolved in 2007 $ 0.13 Reduced SunCor expectations $(0.10) Miscellaneous items, net $ 0.18

30 Significant Capital Investment to Support Growth $ Millions 1,200 1, Projected APS Distribution APS Transmission APS Generation Other Excluding SunCor

31 Controlling O&M Costs $/Customer $400 $300 $200 $100 $ APS Similar-Size Utilities Excluding generation costs

32 Solid Equity Ratios to Support Growth Consolidated APS 60% 50% 50% 60% 50% 53% 40% 40% 30% % 2006 Sept Sept Excluding off-balance sheet adjustments

33 U.S. Electric Utilities Dividend Yields 6% PNW 5.2% Pinnacle West Annual Dividend $2.10 Per Share 5% 4% Industry Average 3.5% 3% 2% 1% 0% Pinnacle West Electric Utilities As of October 31, 2007

34 Summary Focus on customer service excellence Maintain solid operating performance Manage costs and business risks Foster positive regulatory relations and achieve constructive outcomes Optimize real estate assets Create long-term shareholder value

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36 Appendix

37 Current Credit Ratings Profile S&P Moody s Fitch Pinnacle West (Parent) Senior Unsecured Debt* BB+ Baa3 N/A Commercial Paper A3 P3 F3 Outlook Stable Negative Stable APS Senior Unsecured Debt BBB- Baa2 BBB Commercial Paper A3 P2 F2 Outlook Stable Negative Stable * Preliminary

38 Liquidity Resources APS $400 million revolver through December 2010 $500 million revolver through September 2011 Short-term borrowing $150 million as of September 30, 2007 Next long-term debt maturity 2011 Pinnacle West (parent) $300 million revolver through December 2010 Short-term borrowing $116 million as of September 30, 2007 Next long-term debt maturity 2011

39 Arizona Corporation Commissioners Party Commissioner Term Commissioner Affiliation Since Expires Mike Gleason, Chairman Republican Jan Jan Jeff Hatch-Miller Republican Jan Jan Kristin Mayes Republican Oct Jan William Mundell Republican June 1999 Jan Gary Pierce Republican Jan Jan. 2011

40 APS Retail Rate Case Summary of Request and Final Order APS Rate ACC Final Request Order Annual base rate increase (decrease) Fuel-related $ 315M $ 315M Non-fuel 120M 7M Total $ 435M $ 322M Percent increase 20.4% 15.1% Base fuel rate per kwh Return on equity 11.5% 10.75% Capital structure Long-term debt 45% 45% Common equity 55% 55% Rate base $4.46B $4.40B

41 APS Retail Service Territory Phoenix APS Retail Service Territory

42 Economic Growth Underpins Retail Sales Growth Annual Growth 6% 4% 2% 0% Arizona Population APS Customers APS Retail Sales* * Weather normalized

43 APS 2006 Retail Customer and Sales Mix 1.1 Million Customers 27,970 GWh Sales 89% 47% 44% 11% 9% Residential Commercial Industrial

44 2006 Energy Fuel Mix Consolidated Native Load Nuclear 14% Coal 26% Purchased Power 46% Gas 14% Nuclear 22% Coal 42% 14% Purchased Power Gas 22%

45 Arizona Transmission System UTAH UTAH UTAH COLORADO MEAD/ MARKETPLACE/ LAS VEGAS GLEN CANYON NAVAJO TRIBAL LAND SHIPROCK SAN JUAN FOUR CORNERS MOENKOPI CALIFORNIA FLAGSTAFF CHOLLA MCKINLEY CORONADO CALIFORNIA CALIFORNIA BOUSE N GILA PALO VERDE PINNACLE PEAK WEST WING PERKINS LIBERTY KYRENE SILVERKING SAGUARO SPRINGER- VILLE GREENLEE (AEPCO) (TEP) KEY: 500 kv 345 kv to 360 kv SOUTH APACHE VAIL 230 kv to 287 kv BICKNELL

46 WECC Available Transmission Capability 3,007 4,038 2,678 6, Summer 2007 estimates (MW)

47 SunCor Project Diversity by Type Legacy Properties Post-1990 Properties $ Millions $ Millions Master Planned Owned Master Planned Ventures with Landowners Commercial & Other

48 SunCor Geographic Project Diversity Legacy Properties Post-1990 Properties $ Millions $ Millions Metro Phoenix Northern Arizona Utah New Mexico Idaho

49 SunCor Project Summaries Master-Planned Communities Year Acquired Original Acreage 12/31/06 Acreage Palm Valley (Phoenix, AZ) ,300 2,700 Rancho Viejo Phase I (Santa Fe, NM)* ,500 1,500 Coral Canyon (St. George, UT)* , StoneRidge (Northern AZ)* ,840 1,100 Avimor (Boise, ID)* ,500 12,500 Prescott Lakes (Northern AZ)* Campbell Ranch (Albuquerque, NM)* ,600 2,600 Yavapai Ranch (Northern AZ)* ,000 25,000 * Venture with landowner

50 SunCor Project Summaries Major Commercial Communities Year Acquired Original Acreage 12/31/06 Acreage Talavi Alameda Crossing (Palm Valley) Palm Valley Office Park Phase Centrepoint Hayden Ferry Lakeside Office & Condos Rio West Business Park

51 Social Responsibility Awards Innovest s highest rating (AAA) and ranked #2 electric utility Dow Jones Sustainability Index Global 100 Most Sustainable Corporations in World by Corporate Knights Storebrand s Social Responsibility Index best in class distinction EPA Climate Protection Award